McDonald's last stand in Japan: Fries drizzled in chocolate syrup

Customers like Shigeaki Yamaguchi may be the last hope for McDonald's Japan as it battles slumping sales in the wake of an embarrassing string of food scandals.

At a location in Tokyo's busy Shinjuku district, Yamaguchi munched on the chain's newest culinary offering - french fries drizzled in brown and white chocolate syrup.

"Delicious," the 37-year-old proclaimed as he dug into the sticky 330 yen ($2.90) mass known as the McChoco Potato.

"The reason I came is that I wanted to taste products that didn't exist until now."

Love them or hate them, social media spun into a frenzy over chocolate fries, and customer numbers rose in January for the first time in several years - just as the salty-sweet creation launched.

"The chocolate fries have been extremely popular with customers, and actually not just customers in Japan," the unit's president Sarah Casanova said last week.

"They have made the news and blogs and SNS (social networking services) all over the world."

Still, food industry watchers warn it will take more than the apparent success of chocolate fries to save the fast-food chain's bacon.

Market share in Japan slipped to 10.4 percent in 2014 from nearly 14 percent five years earlier, according to market research firm Euromonitor, putting the chain well behind ubiquitous convenience stores stocking a wide range of food, and Japanese quick-service chains.

McDonald's Japan last week reported an annual loss of 34.7 billion yen ($304 million), its second straight year in the red and the biggest shortfall since opening its first store in Tokyo's posh Ginza district in 1971.

"Undoubtedly, 2015 was the most challenging year we have faced in our 45-year history," Casanova said.

US-based McDonald's is mulling the sale of some if its stake in the Japan unit, which has closed hundreds of its 3,000 locations and renovated others in recent years.

Some analysts speculate the buyer will be the Japan-based owner of the 7-11 chain of convenience stores.

'Too late to go back'

Sales went into a steep dive after a mainland Chinese supplier was discovered to be mixing out-of-date meat with fresh produce. Then bits of plastic were found in a sundae and pieces of vinyl in chicken nuggets.

The apparent discovery of a human tooth in a box of french fries was, for many consumers, the icing on an increasingly unappetising cake.

Vows to improve food quality and win back "customer trust" followed, along with a press conference where Casanova bowed deeply to the cameras - a common act of contrition by executives at crisis-hit Japanese firms.

A new mix-and-match menu with burgers, side dishes and desserts has also been in the offing as well as a focus on local produce, such as using cheese from northern Hokkaido or sweet potatoes from southwestern Japan.

The company held a burger-naming contest this month, garnering some five million suggestions on what to call its new sandwich.

The lucky winner gets 1.42 million yen ($12,400) in cash - enough, the chain says, to buy the yet-to-be-named burger every day for a decade.

"It seems like they're tightening control over management and offering new products," said a hopeful Yamaguchi, who works in advertising.

But his co-worker Yosuke Ota was less convinced.

"I'll always have doubts after the scandal," he said.

Food industry analysts are also sceptical.

"Some of the company's efforts, such as store renovations and a new menu worked out, but the rising customer numbers are mostly due to reversing a sharp drop a year ago," said Yuri Gorai, a research analyst at Euromonitor.

"Monthly sales are not back to the same level as they were before the food scandals."

Japanese customers expect high quality food, so the chain must re-focus on sourcing locally, said Seiichiro Samejima, a fast food sector analyst at Ichiyoshi Research Institute.

"The company needs to appeal to customers by telling them they're not using Chinese products but rather safe, domestically sourced ingredients," he added.

McDonald's Japan got off to a strong start in the early years under former President Den Fujita who combined American and Japanese management styles.

Things changed under Fujita's successor who boosted the number of franchised stores and sourced huge amounts of food as cheaply as possible from overseas suppliers, said Hosei University professor Kosuke Ogawa, who authored a book on the company's failure in Japan.